Macquarie In Consolidation

Macquarie Group ((MQG)) is a leading provider of banking, financial, advisory, investment and funds management services. It operates as a non-operating holding company (NOHC). The company’s products and services include asset and wealth management which is engaged in the distribution and manufacture of funds management products. In June 2014 Charter Hall Group announced that Macquarie was no longer the substantial holder of the Company. For the year ending the 31st of March 2018 interest income decreased 4% to A$4.94B. Net interest income after loan loss provision increased below 1% to A$1.92B. Net income applicable to shareholders increased 16% to A$2.45B. Net income benefited from the Macquarie Capital part income increase of 45% to A$700M. Broker / Analyst consensus is currently “Buy”. The dividend is 4.3%.

Reasons to remain bullish:
→ Earnings remain robust.
→ The annuity business is performing well with activity levels in the market-facing business more positive.
→ Stable due to focusing on the asset management business.
→ The recent acquisition of an aircraft leasing portfolio is positive for future earnings.
→ Capital market trends are improving, and figures suggests MQG is set for its strongest half in three years.
→ The pay-out ratio over the past five years has been at or above guidance.

There was no reason to be anything other than bullish during our last review of MQG, with price breaking through the upper boundary of an ascending triangle with some attitude. However, nothing is guaranteed and rather than price getting on with the job, it retraced almost immediately. The bottom line is, the triangle hasn’t proven to be significant and has now morphed into a broader consolidation pattern. Not that this is a bearish proposition as we can’t ignore the potency of the trend higher off the 2011 lows which has been nothing short of exceptional. In fact, when looking at the weekly chart (not shown) there is scope for further weakness within a larger corrective pattern. As long as choppy and messy price action takes hold, the bullish longer-term case remains firmly in place. For now, we must expect more of the same lacklustre price action which has been unfolding since late June. It would take a push above the recent pivot high at $129.87 to suggest the trend is back on track. On the flipside, the larger degree patterns remain bullish and will do so unless the zone of support sitting between $96.00 – 87.00 is penetrated although a decline of that magnitude is looking highly unlikely at this juncture. We continue to retain a neutral stance over the short-term, especially as lacklustre price action remains the main theme. Funnily enough, brokers have become a little more bullish on the stock although I have to say it’s about time. Most have been less than enthusiastic during the longer-term uptrend. Perhaps this is a bad omen – we’ll see.

Trading Strategy

With no way of knowing when the consolidation phase is going to terminate we must continue to stand aside until either the upper or lower boundary of the box comes under pressure. If buyers step up around the minor line of support just beneath current levels partial positions could be initiated following signs of strength. I wouldn’t go the full hog as further confirmation is required regarding the uptrend kicking back into gear. We’ll keep it on the watchlist as the trend is undeniable.